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LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
 6 Months Ended
Jun. 30, 2023
Receivables [Abstract]  
LOANS AND THE ALLOWANCE FOR CREDIT LOSSES LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
The following presents a summary of the Company’s loans at amortized cost as of the dates noted (dollars in thousands):
June 30,
2023		December 31,
2022
Cash, Securities, and Other$150,620 $165,559 
Consumer and Other21,762 26,070 
Construction and Development310,382 285,627 
1-4 Family Residential880,600 899,722 
Non-Owner Occupied CRE558,276 493,134 
Owner Occupied CRE217,020 214,189 
Commercial and Industrial339,399 361,791 
Total 2,478,059 2,446,092 
Allowance for credit losses(22,044)(17,183)
Total, net$2,456,015 $2,428,909 
Loans accounted for under the fair value option(1)
17,523 23,321 
Loans, net$2,473,538 $2,452,230 
______________________________________
(1)Includes $18.3 million and $23.4 million of unpaid principal balance of loans held for investment measured at fair value as of June 30, 2023 and December 31, 2022, respectively. Includes fair value adjustments on loans held for investment accounted for under the fair value option. See Note 13 – Fair Value.
As of June 30, 2023 and December 31, 2022, total loans held for investment included $221.0 million and $230.4 million, respectively, of performing loans purchased through mergers or acquisitions.
As of June 30, 2023, the Cash, Securities, and Other portion of the loan portfolio included $5.4 million of SBA Paycheck Protection Program (“PPP”) loans, or 3.6% of the total category. As of December 31, 2022, the Cash, Securities, and Other portion of the loan portfolio included $6.9 million of PPP loans, or 4.2% of the total category.
As of June 30, 2023, the Company’s Commercial and Industrial loans included four Main Street Lending Program (“MSLP”) loans with the net carrying amount of $5.5 million, or 1.6% of the total category. As of December 31, 2022, the Company’s Commercial and Industrial loans included five MSLP loans with the net carrying amount of $5.9 million, or 1.6% of the total category.
Loan Modifications
As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.
In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the original terms. As of June 30, 2023, the Company’s loan portfolio included 45 non-acquired loans which were previously modified under the loan modification program, totaling $76.0 million. Through the Teton Acquisition, the Company acquired loans which were previously modified and are no longer in their deferral period. As of June 30, 2023, there were 14 of these loans, totaling $3.1 million.
All loans modified in response to COVID-19 are classified as performing and pass rated as of June 30, 2023. These loans are included in the allowance for credit loss general reserve in accordance with ASU 2016-13. Management has increased our loan level reviews and portfolio monitoring to address the changing environment. Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.
Interest accrued during the modification term on modified loans is deferred to the end of the loan term. Accrued interest receivable is excluded from the estimate of credit losses.
For the three and six months ended June 30, 2023, the Company made protective advances of $0.3 million and $0.5 million to borrowers experiencing financial difficulty.
The following presents, by class, an aging analysis of the amortized cost basis in loans past due as of the date noted (dollars in thousands):
June 30, 202330-59
Days
Past Due		60-89
Days
Past Due		90 or
More Days
Past Due		Total
Loans
Past Due		CurrentTotal
Amortized
Cost
Loans Accounted for Under the Fair Value Option(1)
Total Loans
Cash, Securities, and Other$1,704 $— $— $1,704 $148,916 $150,620 $— $150,620 
Consumer and Other9 1,016 6 1,031 20,731 21,762 17,523 39,285 
Construction and Development— — — — 310,382 310,382 — 310,382 
1-4 Family Residential651 — — 651 879,949 880,600 — 880,600 
Non-Owner Occupied CRE— — — — 558,276 558,276 — 558,276 
Owner Occupied CRE3,950 — — 3,950 213,070 217,020 — 217,020 
Commercial and Industrial7,012 11,014 10,030 28,056 311,343 339,399 — 339,399 
Total$13,326 $12,030 $10,036 $35,392 $2,442,667 $2,478,059 $17,523 $2,495,582 

December 31, 202230-59
Days
Past Due		60-89
Days
Past Due		90 or
More Days
Past Due		Total
Loans
Past Due		CurrentTotal Amortized Cost
Loans Accounted for Under the Fair Value Option(1)
Total Loans
Cash, Securities, and Other$1,735 $539 $4 $2,278 $163,281 $165,559 $— $165,559 
Consumer and Other657 5 5 667 25,403 26,070 23,321 49,391 
Construction and Development— — 201 201 285,426 285,627 — 285,627 
1-4 Family Residential1,752 — 5 1,757 897,965 899,722 — 899,722 
Non-Owner Occupied CRE1,071 — — 1,071 492,063 493,134 — 493,134 
Owner Occupied CRE1,165 — — 1,165 213,024 214,189 — 214,189 
Commercial and Industrial4,858 10,648 1,319 16,825 344,966 361,791 — 361,791 
Total$11,238 $11,192 $1,534 $23,964 $2,422,128 $2,446,092 $23,321 $2,469,413 
(1)Refer to Note 13 - Fair Value for additional information on the measurement of loans accounted for under the fair value option.
As of June 30, 2023, the Company had no loans that were more than 90 days delinquent and accruing interest. As of December 31, 2022, the Company had one loan, totaling an immaterial amount, in the Commercial and Industrial portfolio that was more than 90 days delinquent and accruing interest.
Non-Accrual Loans
The accrual of interest on loans is discontinued at the time the loan becomes 90 days or more delinquent unless the loan is well secured and in the process of collection or renewal due to maturity. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged off if collection of interest or principal is considered doubtful. The following presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing by class as of the date noted (dollars in thousands).
As of June 30, 2023
Non-accrual loans with
no ACL		Total non-accrual loansLoans past due over 89 days still accruing
Cash, Securities, and Other$— $— $— 
Consumer and Other6 6 — 
Construction and Development— — — 
1-4 Family Residential— — — 
Owner Occupied CRE— — — 
Commercial and Industrial(1)
2,076 10,030 — 
Total$2,082 $10,036 $— 
(1)The Company recorded an allowance of $2.2 million on three individually analyzed loans totaling $8.9 million as of June 30, 2023.
The following presents the recorded investment in non-accrual loans by class as of the date noted (dollars in thousands):
As of December 31, 2022
Non-accrual loans with
no ALLL		Total non-accrual loansLoans past due over 89 days still accruing
Cash, Securities, and Other$4 $4 $— 
Consumer and Other5 5 — 
Construction and Development201 201 — 
1-4 Family Residential— — — 
Owner Occupied CRE1,165 1,165 — 
Commercial and Industrial10,762 10,762 25 
Total(1)
$12,137 $12,137 $25 
(1)The Company did not record a specific reserve on any individually analyzed loans as of December 31, 2022.
The Company recognized $0.2 million of interest income on non-accrual loans during the three and six months ended June 30, 2023. Additionally, two non-accrual loans totaling $1.8 million were paid off during the second quarter of 2023. The Company recognized an immaterial amount of interest income on non-accrual loans during the three and six months ended June 30, 2022.
Non-accrual loans, excluding loans held for investment measured at fair value, are classified as collateral dependent loans and are individually evaluated. The following presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses, by class of loans as of the date noted (dollars in thousands):
As of June 30, 2023
Collateral Dependent Loans
Secured by Real EstateSecured by Cash and
Securities		Secured by OtherTotal
Cash, Securities, and Other$— $— $— $— 
Consumer and Other— — — — 
Construction and Development— — — — 
1-4 Family Residential— — — — 
Non-Owner Occupied CRE— — — — 
Owner Occupied CRE— — — — 
Commercial and Industrial— — 10,030 10,030 
Total$— $— $10,030 $10,030 
Allowance for Credit Losses on Loans
Beginning January 1, 2023, the allowance for credit losses for loans is measured on the loan’s amortized cost basis, excluding interest receivable. Interest receivable excluded at June 30, 2023 and December 31, 2022 was $10.5 million and $9.8 million, respectively, presented in Accrued interest receivable on the Condensed Consolidated Balance Sheets. Refer to Note 1 - Organization and Summary of Significant Accounting Policies for additional information related to the Company’s methodology on estimated credit losses.
The Allowance for credit losses on loans (“ACL”) represents Management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans’ contractual terms, adjusted for expected prepayments when appropriate. Our quantitative discounted cash flow models use economic forecasts including; housing price index (“HPI”), gross domestic product (“GDP”), and national unemployment. The HPI, GDP and unemployment twelve month forecasts improved as of June 30, 2023 when compared to December 31, 2022. As a result, we saw decreased probability of default rates and loss given default rates which in turn reduced our model loss rates, partially offset by loan growth and changes in our segment mix, resulting in a $0.8 million release of provision on pooled loans. The individually analyzed loan allowance was increased $2.2 million as of June 30, 2023.
Allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories. The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended June 30, 2023 (dollars in thousands):
Cash,
Securities
and Other		Consumer
and
Other		Construction
and
Development		1-4
Family
Residential		Non-Owner
Occupied
CRE		Owner
Occupied
CRE		Commercial
and
Industrial		Total
Changes in allowance for credit losses for the three months ended June 30, 2023
Beginning balance
$1,451 $196 $6,229 $3,821 $2,709 $1,272 $4,165 $19,843 
Provision for credit losses(140)(50)1,267 (242)(214)(90)1,678 2,209 
Charge-offs— (13)— — — — — (13)
Recoveries— 4 — — — — 1 5 
Ending balance$1,311 $137 $7,496 $3,579 $2,495 $1,182 $5,844 $22,044 
Changes in allowance for credit losses for the six months ended June 30, 2023
Beginning balance, prior to the adoption of ASU 2016-13
$1,198 $191 $2,025 $6,309 $3,490 $1,510 $2,460 $17,183 
Impact of adopting ASU 2016-13193 106 4,681 — (2,808)(689)(104)2,091 3,470 
Provision for credit losses(80)(145)790 78 (306)(224)1,291 1,404 
Charge-offs— (30)— — — — — (30)
Recoveries— 15 — — — — 2 17 
Ending balance$1,311 $137 $7,496 $3,579 $2,495 $1,182 $5,844 $22,044 
Allowance for credit losses as of June 30, 2023 allocated to loans evaluated:         
Individually$— $— $— $— $— $— $2,195 $2,195 
Collectively1,311 137 7,496 3,579 2,495 1,182 3,649 19,849 
Ending balance$1,311 $137 $7,496 $3,579 $2,495 $1,182 $5,844 $22,044 
Loans as of June 30, 2023:        
Individually evaluated$— $— $— $— $— $— $10,030 $10,030 
Collectively evaluated150,620 21,762 310,382 880,600 558,276 217,020 329,369 2,468,029 
Loans held for investment measured at fair value— 17,523 — — — — — 17,523 
Ending balance$150,620 $39,285 $310,382 $880,600 $558,276 $217,020 $339,399 $2,495,582 
Cash,
Securities
and Other		Consumer
and
Other		Construction
and
Development		1-4
Family
Residential		Non-Owner
Occupied
CRE		Owner
Occupied
CRE		Commercial
and
Industrial		Total
Changes in allowance for loan losses for the three months ended June 30, 2022
Beginning balance$1,440 $283 $954 $3,789 $2,867 $1,328 $3,224 $13,885 
Provision for loan losses(246)(16)120 1,056 368 149 (912)519 
Charge-offs— (95)— — — — — (95)
Recoveries— 48 — — — — — 48 
Ending balance$1,194 $220 $1,074 $4,845 $3,235 $1,477 $2,312 $14,357 
Changes in allowance for loan losses for the six months ended June 30, 2022
Beginning balance$1,598 $266 $1,092 $3,553 $2,952 $1,292 $2,979 $13,732 
Provision for loan losses(404)58 (18)1,292 283 185 (667)729 
Charge-offs— (192)— — — — — (192)
Recoveries— 88 — — — — — 88 
Ending balance$1,194 $220 $1,074 $4,845 $3,235 $1,477 $2,312 $14,357 
Allowance for loan losses as of December 31, 2022 allocated to loans evaluated:        
Individually$— $— $— $— $— $— $— $— 
Collectively1,198 191 2,025 6,309 3,490 1,510 2,460 17,183 
Ending balance$1,198 $191 $2,025 $6,309 $3,490 $1,510 $2,460 $17,183 
Loans as of December 31, 2022:        
Individually evaluated$4 $5 $201 $— $— $1,165 $10,762 $12,137 
Collectively evaluated165,555 26,065 285,426 899,722 493,134 213,024 351,029 2,433,955 
Loans held for investment measured at fair value$— $23,321 $— $— $— $— $— $23,321 
Ending balance$165,559 $49,391 $285,627 $899,722 $493,134 $214,189 $361,791 $2,469,413 
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans by credit risk on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention—Loans classified as special mention have a potential weakness or borrowing relationships that require more than the usual amount of management attention. Adverse industry conditions, deteriorating financial conditions, declining trends, management problems, documentation deficiencies, or other similar weaknesses may be evident. Ability to meet current payment schedules may be questionable, even though interest and principal are still being paid as agreed. The asset has potential weaknesses that may result in deteriorating repayment prospects if left uncorrected. Loans in this risk grade are not considered adversely classified.
Substandard—Substandard loans are considered "classified" and are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans in this category may be placed on non-accrual status and may individually be evaluated.
Doubtful—Loans graded Doubtful are considered "classified" and have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. However, the amount of certainty of eventual loss is not known because of specific pending factors.
Loans accounted for under the fair value option are not rated.
The following table presents the amortized cost basis of loans by credit quality indicator, by class of financing receivable, and year of origination for term loans as of June 30, 2023. For revolving lines of credit that converted to term loans, if the conversion involved a credit decision, such loans are included in the origination year in which the credit decision was made. If revolving lines of credit converted to term loans without a credit decision, such lines of credit are included in the “Revolving lines of credit converted to term” column in the following table.

Term Loans Amortized Cost by Origination Year
June 30, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Cash, Securities, and Other
Pass$2,252 $12,232 $22,220 $5,712 $6,405 $13,269 $88,530 $— $150,620 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Not rated— — — — — — — — — 
Total Cash, Securities, and Other$2,252 $12,232 $22,220 $5,712 $6,405 $13,269 $88,530 $— $150,620 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Consumer and Other
Pass$102 $2,164 $676 $800 $1,075 $27 $16,918 $— $21,762 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Not rated(1)
— 12,721 3,559 1,113 130 — — — 17,523 
Total Consumer and Other$102 $14,885 $4,235 $1,913 $1,205 $27 $16,918 $— $39,285 
Current year-to-date gross write-offs$— $— $— $3 $25 $2 $— $— $30 
Construction and Development
Pass$8,625 $231,454 $46,347 $19,620 $— $— $4,336 $— $310,382 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Not rated— — — — — — — — — 
Total Construction and Development$8,625 $231,454 $46,347 $19,620 $— $— $4,336 $— $310,382 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
1-4 Family Residential
Pass$29,331 $391,651 $154,576 $113,083 $38,392 $36,469 $117,098 $— $880,600 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Not rated— — — — — — — — — 
Total 1-4 Family Residential$29,331 $391,651 $154,576 $113,083 $38,392 $36,469 $117,098 $— $880,600 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Term Loans Amortized Cost by Origination Year
June 30, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Non-Owner Occupied CRE
Pass$31,476 $207,850 $130,026 $79,679 $24,756 $54,668 $24,758 $— $553,213 
Special mention— — — 5,063 — — — — 5,063 
Substandard— — — — — — — — — 
Not rated— — — — — — — — — 
Total Non-Owner Occupied CRE$31,476 $207,850 $130,026 $84,742 $24,756 $54,668 $24,758 $— $558,276 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Owner Occupied CRE
Pass$4,513 $46,604 $58,368 $41,498 $5,702 $52,374 $7,961 $— $217,020 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Not rated— — — — — — — — — 
Total Owner Occupied CRE$4,513 $46,604 $58,368 $41,498 $5,702 $52,374 $7,961 $— $217,020 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Commercial and Industrial
Pass$14,149 $80,825 $45,913 $15,064 $6,971 $14,060 $149,459 $— $326,441 
Special mention— — — 2,928 — — — — 2,928 
Substandard— 7,954 — — — 1,090 986 — 10,030 
Not rated— — — — — — — — — 
Total Commercial and Industrial$14,149 $88,779 $45,913 $17,992 $6,971 $15,150 $150,445 $— $339,399 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Total$90,448 $993,455 $461,685 $284,560 $83,431 $171,957 $410,046 $— $2,495,582 
(1)Includes loans held for investment measured at fair value as of June 30, 2023. Includes fair value adjustments on loans held for investment accounted for under the fair value option.
The following presents, by class and by credit quality indicator, the recorded investment in the Company’s loans as of the date noted (dollars in thousands):
December 31, 2022PassSpecial
Mention		SubstandardNot RatedTotal
Cash, Securities, and Other$165,555 $— $4 $— $165,559 
Consumer and Other(1)
26,070 — — 23,321 49,391 
Construction and Development285,426 — 201 — 285,627 
1-4 Family Residential899,722 — — — 899,722 
Non-Owner Occupied CRE493,134 — — — 493,134 
Owner Occupied CRE213,024 — 1,165 — 214,189 
Commercial and Industrial348,844 2,185 10,762 — 361,791 
Total$2,431,775 $2,185 $12,132 $23,321 $2,469,413 
(1)Includes loans held for investment measured at fair value as of December 31, 2022. Includes fair value adjustments on loans held for investment accounted for under the fair value option.